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Ontario’s “smart meter”: failed to achieve even its basic objective says the Auditor General

Conservation was a solution that came up frequently in last year’s stakeholder consultations held by the Ontario Power Authority. Let’s save power, citizens, community groups and other stakeholders said; if we do, we will all save money. Parker Gallant takes a look at how that’s working for us.

The Ontario government has stated that one of its goals is to promote conservation of electricity use in the province. Ontario’s electricity ratepayers are obliged to pick up the tab for hundreds of millions of dollars every year (2014 budget for the Ontario Power Authority [OPA] was $483 million) to achieve conservation objectives set by the Premier of Ontario and the appointed Energy Minister.

So, how is the government doing? Premier Kathleen Wynne and Energy Minister Bob Chiarelli were recently put on the hot seat by the “smart meter” audit released December 9, 2014 by the Ontario Auditor General. Auditor General Bonnie Lysyk’s report was critical of expenditures on smart meters: the program cost ratepayers almost $2 billion without any apparent benefit.

The Energy Minister says that smart meters allowed time-of-use (TOU) pricing, which was expected to have two results: they would encourage “time shifting” in power use by consumers, and encourage conservation. Time shifting was seen as a way to provide a leveling of Ontario’s peak demand which can vary by as much as 10,000 megawatts (MW) in 24 hours falling to base-loadNB or lower during the night, and rising by 10-12,000 MW during the day. Reducing consumption was sought via programs aimed at energy efficiency, educating consumers about bad energy habits (leaving lights on when you leave a room) and “on-peak, off-peak” pricing.

Did Time of Use pricing get the

job done? The AG says, “No.”

Achieving these two objectives would lead to a reduction in the need for capital investments in new generation and/or the need to refurbish existing generating plants. So the question is, did TOU pricing achieve the objectives?

The AG’s audit report claimed it did not.

The following excerpt from the Auditor General’s report sums up the findings nicely:

“In 2013, separate studies released by the Ontario Power Authority and the OEB indicated that TOU pricing had a modest impact on residential ratepay­ers, reducing their peak demand by only about 3%, but a limited or unclear effect on small businesses, and none at all on energy conservation.” [My emphasis]

Just eight days after the report was released, on December 17, 2014, another report was issued about the success of the program to get Ontario’s ratepayers to conserve electricity. This one came from the Ontario Energy Board (OEB). In the Executive Summary is this claim:

“Results from 2013 programs indicate that distributors have achieved 5,139 GWh of cumulative energy savings, or 86% of the overall energy (kWh) savings target of 6,000 GWh and 639 MW of demand savings1, or 48% of the peak demand (kW) savings target of 1,330 MW.”

The conflict is immediately obvious in that the OPA and OEB’s “studies” had “indicated that TOU pricing had a modest impact on residential ratepay­ers, reducing their peak demand by only about 3%, but a limited or unclear effect on small businesses, and none at all on energy conservation”— yet here they were touting their success.

The question: who should we believe? The inclination is to favour the AG’s report as it is independent. In fairness, I undertook an audit based on information available from the OEB’s own website. I visited their Yearbook of Electricity Distributors and set about examining the statistics annually presented by the monopolies, those 73 local distribution companies or LDCs who send us our hydro bills. The yearbook contains all information needed except for Class A (large industrial) consumers. The report represents an appropriate measure for conservation but not peak demand. I first went to the year-end report for 2009 knowing this was the big starting point on the push for conservation and demand management. That push came from the Energy Minister’s directive of March 31, 2010 to the OEB and was cited in the OEB’s December 17, 2014 report.

The reported “Total purchased supply” by LDCs for 2009 in the OEB Yearbook was 124,206,032 megawatt hours (MWh) and the “Total customer households reported” was 4,748,577. Average monthly consumption for the year ended March 31, 2009 was 2,180 kWh (kilowatt hours) or 26.18 MWh annually. Note the consumption totals include households and most small- and medium-sized commercial entities, referred to as Class B customers.

The 2013 Yearbook revealed that average monthly consumption had dropped to 2,112 kWh (68 kWh) or 816 kWh annually, and total purchased supply was 125,306,563 MWh (125.3 TWh). The customer base was reported as 4,944,488.

Has TOU pricing been effective in triggering “conservation” and shifting “peak demand” as hoped for?

The other important issue is, has the cost of those directives the Ontario government imposed (via the OPA and the OEB) on Ontario’s ratepayers and the billions spent provided value for money?

Measuring Success

Peak Demand

As noted in the quote from the OEB’s report, the target set by Brad Duguid when he was the Energy Minister for the reduction of “peak demand” (1,330 MW) has been elusive, and furthermore, unlikely to be achieved. The target set reflected a “peak demand” reduction of about 3.5 % based on generation capacity of 35,500 MW so it may have seemed a reasonable assumption. TOU pricing, however, has not achieved that objective but what it did was shift peak demand from near the end of the working day to the time immediately following TOU “on-peak” pricing’s shift to the “off peak” rate at 7 PM. Peak daily demand now often occurs at 7 or 8 PM. TOU pricing has also exacerbated “peak demand” swings during a typical day: the addition of wind turbines to the system means we sometimes have too much power, particularly during spring and fall when high/low peaks are relatively close, compared to peaks during summer and winter. These “base-load” additions (wind gets first to the grid rights) cause wholesale prices to drop — Ontario ratepayers pick up the losses on those sales.

Examining how the government might act to achieve “peak demand” targets is cause for concern. If LDC were placed in a position to remotely control households and businesses in the province (using smart meters) and could re-set thermostats, stoves, refrigerators, etc., they could reduce peak demand during the hottest days of summer or the coldest days of winter and use that control to decide what peak demand should be! So far, the government hasn’t gone that far but peaksaverPLUS® offered by the LDC for free does allow the power supplier to remotely adjust: your thermostat, your water heater, and your pool pump without consultation!

Unless we blindly all sign up for peaksaverPLUS or are forced to do so, targets set will continue to elude the government. The view of the OEB is that the targets set in 2010 will not be achieved as noted from this excerpt in their report:

“Currently, only one distributor has achieved at least 100% of its peak demand (kW) target, while two others have achieved at least 80%. Distributors reiterated that the main issue with the peak demand (kW) targets could be that they were too high when they were initially set.”

Conservation

Comparing the 2009 and 2013 numbers from the OEB’s Yearbook reveals that “average consumption” has fallen by 875 kilowatts annually, or 3.3%.

For an average1 household, that is 317 kWh annually and a monthly reduction from 800 kWh (9,600 kWh annually) to 774 kWh (9283 kWh annually). In 2009 the cost of a kWh averaged 0.0615 cents/per kWh and the cost of the raw commodity (electricity) for the full year was $590. By reducing annual consumption by 317 kWh, the savings should have been $19.50.

In 2013, the cost of the commodity for the average 9,283 kWh consumed per household at the average price of 0.09.2 cents/kWh produces a commodity cost of $854.

The average household would have

had to reduce annual consumption by 33%

just stay at the same rate as 2009

So, not only did that annual savings of $19.50 disappear, but the average household paid an additional $264.00annually. The $264 increase paid by the 4.6 million households extracts an additional $1.2 billion dollars from ratepayers each year; it’s an increase that continues to grow. The average household would have had to reduce their annual consumption by 33% or 3,200 kWh in order to have simply matched the cost of their electricity consumption for 2009, yet the target set for conservation was only 4.8%.

What’s next? The current Energy Minister Bob Chiarelli has reset the targets for both peak demand and conservation in his Achieving Balance long-term energy plan. The target set for reducing peak demand is 10% (2,400 MW by 2025) and for conservation is 16% (30 TWh by 2032). Both of these are larger than the prior targets so ratepayers are expected to dig even deeper into their pockets, unless they drop their consumption levels by 75%.

Conclusion

TOU pricing has failed to generate the conservation targets, and time shifting in power use, which was promised to consumers as a way to save money, will actually continue to cause rates to increase. The alternative for ratepayers is to move out of their homes but Ontario lacks sufficient caves to accommodate all of us!

House for sale in Detroit: not looking so bad. Might as well use the cheap Michigan power you’re paying for anyway.

Happy New Year New York and Michigan!

Once again Ontario’s oh so generous ratepayers, ushered in the New Year by treating our neighbours to some very cheap electricity. We were much nicer this January 1st than last year, as we exported a record 87,000 megawatt hours (MWh) at a bargain price. That sale generated revenue of about $275,000 to offset a small part of the costs to Ontario’s ratepayers. We exported 38,000 MWh more (+ 78%) than on January 1, 2014, and a year ago we generated $1,450,000 for the smaller number of MWh sold.

Wind was presumably a big factor in this year’s export sales as wind power developers also produced a record 58,800 MWh — power we didn’t need. That cost Ontario’s ratepayers of about $7.3 million, based on the estimated contract costs. The cost falls to $7 million if we allocate the sales revenue from the exports just to wind, despite knowing other types of generation were included.

Back on January 1, 2014 wind generators produced only about 11,400 MWH so compared to 2014 wind power generation for January 1, 2015 increased by 47,400 MWh, or more than 400%. Out of the 87,000 MWh exported, 62,000 MWh were sold to Michigan and New York for $4.41 per/MWh (not a weighted average) which accounts for the $275K of export revenue generated.

In total, January 1, 2015’s generation cost Ontario’s ratepayers $7 million (net) for wind, another $400,000 for curtailed wind, about $1.2 million for steamed off nuclear, almost $1 million for “embedded” wind and solar and about $3 million for the Net Revenue Requirement for those idling gas plants.

Put those all together and the New Year’s Day party left Ontario’s ratepayers with a $12.6 million hangover.